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In May, tens of thousands of young Americans turned in their last exams, collected their college diplomas and commenced… a lifetime of debt. According to the Project on Student Debt, two-thirds of four-year college students graduate with loans averaging almost $22,000 per borrower. Many face much higher levels of debt–more than $100,000–on which they pay interest rates as high as 19 percent.

In an ordinary economy, $22,000 might be manageable, though the pressure to pay it back would still push young people into more lucrative professions instead of fields like teaching, journalism, the arts or civil service. But this is no ordinary economy; the unemployment rate is 9.4 percent, wage growth has crashed and recent grads face the unappetizing prospect of competing against their parents for low-paying jobs to make their college loan payments, which start six months after graduation. Unsurprisingly, the default rate on federally guaranteed student loans has spiked to a ten-year high. That’s bad news for the Treasury but worse for borrowers: these loans cannot be discharged in bankruptcy, so lenders will claim their pound of flesh by garnishing wages. If that fails, Social Security checks are fair game down the road.

The system is clearly broken. Student loans should create opportunities for the young, not cripple them for life, making them less able to save, own a home, start a business, obtain credit, continue education or retire. No wonder that each year 400,000 qualified high school graduates do the math and choose not to go to four-year colleges. This amounts to a crisis not just for students but for our entire society, as Liza Featherstone notes in this week’s cover story.

President Obama has spoken of our nation’s responsibility to “make sure that people who have the grades, the desire and the will, but not the money, can still get the best education possible.” He has proposed a modest but elegant plan to get us on track toward that goal. It increases the Pell Grant program for the neediest students and makes it a federal entitlement with annual hikes tied to inflation, thereby creating year-to-year certainty for recipients. Obama plans to pay for this by eliminating the wasteful Federal Family Education Loan program and streamlining the student loan system. Currently, under FFEL, the feds guarantee 97 percent of a private student loan, making it a virtually risk-free bonanza for lenders, who collect upfront fees and interest. Obama proposes cutting out the banks and expanding federal direct lending, saving $94 billion over the next ten years. It’s a common-sense proposal–one the banks have declared war on, launching an army of lobbyists to push counterproposals and make misleading claims, such as that direct lending would “eliminate your ability to choose,” as a letter from bailout recipient Citigroup to its student borrowers asserted.

Obama’s plan would improve the bottom line only slightly for most students. It does nothing to contain the spiraling cost of college; even with Obama’s boost, Pell Grants will cover a far smaller portion of college costs than they once did. And Obama has yet to take up the Rev. Jesse Jackson’s proposal that the government lend to students at a 1 percent interest rate, higher, it should be noted, than the rate (0.5 percent) it currently extends to banks. Still, by creating a federal entitlement to financial aid and cutting out private lenders, Obama’s plan removes the two greatest obstacles to the dream of higher education for all: a Congress full of deficit hawks and a banking industry intent on preserving corporate welfare.